Section 80-IA deduction computed on profit-linked basis; earlier absorbed losses cannot be notionally revived for recomputation.

Section 80-IA deduction is a profit-linked incentive, and the eligible business must be computed in the manner prescribed by the provision. The deeming fiction in section 80-IA(5) applies only for calculating deduction from the initial assessment year onwards by treating the eligible business as the sole source of income for that limited purpose. Losses or depreciation from earlier years that have already been absorbed against other income do not revive for a notional carry-forward or recomputation under section 80-IA(5) when the assessee exercises the option under section 80-IA(2).

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Issues: Whether the assessee was entitled to deduction under section 80-IA of the Income-tax Act, 1961, and whether losses of earlier years already set off against other income could be notionally brought forward for recomputation under section 80-IA(5).

Analysis: The deduction under section 80-IA is in the nature of a profit-linked incentive, and the profits of the eligible business have to be computed in the manner prescribed by the section. The deeming fiction in section 80-IA(5) operates only for determining the quantum of deduction from the initial assessment year onwards and treats the eligible business as the only source of income for that limited purpose. Losses or depreciation of years already absorbed against other income do not revive for notional set-off in a later year when the assessee exercises the option under section 80-IA(2).

Conclusion: The assessee was entitled to the deduction, and earlier losses already set off could not be reopened or brought forward notionally under section 80-IA(5).

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